Transitional Dynamics of Dividend and Capital Gains Tax Cuts / François Gourio, Jianjun Miao.

Format:

Book

Author/Creator:

Gourio, François.

Contributor:

National Bureau of Economic Research.

Miao, Jianjun.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16157.

NBER working paper series no. w16157

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

We develop a dynamic general equilibrium model to study the impact of the 2003 dividend and capital gains tax cuts. In the model, firms are heterogeneous in productivity and make investment and financing decisions subject to capital adjustment costs, equity issuance costs, and collateral constraints. We show that when the dividend and capital gains tax cuts are unexpected and permanent, dividend payments, equity issuance, and aggregate investment rise immediately. By contrast, when these tax cuts are unexpected and temporary, aggregate investment falls in the short run. This fall allows firms to distribute large dividends initially in response to the temporary dividend tax cut. We also find that the effects of a temporary dividend tax cut are very different from those of a temporary capital gains tax cut.

Notes:

Print version record

July 2010.